Pemex to Be Well Provided for in Mexican Energy-Sector Overhaul

Juan Montes and Laurence Iliff broke the news that the Mexican government was planning to announce on Wednesday that national oil company Petróleos Mexicanos will get nearly all the oil and gas reserves it requested in the overhaul of the country’s energy sector. The move will give Pemex an edge against private oil companies that will be allowed to operate in the country for the first time in 76 years. Pemex will keep more than 80% of Mexico’s proven and probable reserves of oil and gas, according to sources.

The story as it appeared on Dow Jones:
Aug. 12, 2014, 3:11 PM EDT: Pemex to Keep Most of Mexico’s Proven, Probable Reserves — Source

4:26 PM EDT: Pemex to Be Well Provided for in Mexican Energy-Sector Overhaul

By Juan Montes And Laurence Iliff

MEXICO CITY–The Mexican government is expected to grant national oil company Petróleos Mexicanos nearly all the oil and gas reserves it has requested to keep under an ambitious overhaul of the energy sector, giving it an edge against private oil companies that will be allowed to operate in the country for the first time in 76 years, a person familiar with the matter said on Tuesday.

Pemex will keep more than 80% of Mexico’s proven and probable reserves of oil and gas, the person said. These include fields the company is already operating and fields it has discovered but hasn’t developed. In March, Pemex had requested to keep 83% of those reserves.

The Energy Ministry will disclose on Wednesday which fields will be assigned to Pemex, in the so-called Round Zero, which is the first step in the broad energy overhaul signed into law on Monday. The government will then tender oil and gas blocks to private companies, as well as Pemex, in future rounds.

Pemex’s Round Zero request, however, will be cut back in areas of prospective resources, which are unexplored onshore and offshore tracts that could potentially contain oil and gas. Pemex had asked for 31% of prospective reserves, but the Energy Ministry will trim that to between 20% and 25%, the person said.

The prospective resources are key to the future for Pemex, but Energy Ministry officials say they are wary of the company’s ability to operate in deep waters and in shale fields, given its lack of experience. The government also must be able to offer attractive oil blocks to private companies in order for the energy overhaul to generate a big increase in oil and gas production.

Pemex has estimated Mexico’s prospective oil and gas resources at about 87 billion barrels of crude-oil equivalent, including deep-water areas of the Gulf of Mexico and onshore shale-rock gas formations, both areas where Pemex hasn’t current production.

President Enrique Peña Nieto’s signing of the new energy laws set in motion implementation of the changes. The reform is the cornerstone of Mr. Peña Nieto’s political and economic agenda and a milestone for a country that nationalized the oil industry in 1938. Still, Pemex’s ability to produce large amounts of oil and gas is critical to the government, since the company funds about one-third of the federal budget.

Under the new legal framework, private companies and foreign national oil groups will be able to produce, explore and refine oil in Mexico, the world’s ninth-largest oil producer, under contract with the Mexican state. Production-sharing contracts and licenses will be allowed, and companies will be able to book reserves as expected income.

Pemex is also expected to announce on Wednesday in which oil and gas fields it wants to partner with third parties. In addition, the government will announce what oil and gas blocks it will tender next year.

Pemex Chief Executive Emilio Lozoya said on Monday that the company was very satisfied with the areas it expects to keep in Round Zero, but said he couldn’t go into detail until the announcement is made.

Going forward, Pemex “will have a diversified base of risks that will allow it to be in all areas, not just in present ones but also in future ones,” he told reporters on the sidelines of an energy event.

The deep waters of the U.S. side of the Gulf of Mexico have been highly successful for major oil companies, and Mexico is hoping it has similar reserves that it can exploit on its side of the Gulf.

Pemex has wide experience in exploiting low-cost, less complex oil fields-often referred to as easy oil. But it has lacked the technology and the financial muscle to develop fields in deep waters or shale rock that requires complex hydraulic-fracking technology.

Mexico’s proven and probable reserves have been certified at 26.2 billion barrels of crude-oil equivalent. Keeping most of the nation’s proven and probable reserves should help Pemex continue to dominate the oil industry for many years, and perhaps halt its decadelong decline in oil production to 2.5 million barrels a day from nearly 3.4 million in 2004.

Write to Juan Montes at juan.montes@wsj.com and Laurence Iliff at laurence.iliff@wsj.com

Email *Please fill in the required field. By clicking submit, I agree to the Privacy Policy and Cookie Policy and I understand I will receive marketing communications from Dow Jones professional information products from which I may unsubscribe using the links provided.

Thank you

Thank you for subscribing, your information has been submitted successfully.